In a June 24 research note, Haywood Securities analyst Colin Healey reported that GoldMining Inc. (GOLD:TSX; GLDLF:OTCQX) will create net smelter returns royalties (NSRs) between 0.5% and 2% on 14 of its gold projects and hold them in its newly formed, wholly owned subsidiary, Gold Royalty Corp.
"GoldMining is taking the first step in positioning its portfolio for increased visibility to investors of royalty streaming companies which tend to trade at a substantial premiums to the respective net asset values [average of 1.7x net asset value)," Healey commented.
Now, existing and investors can get exposure to the new company, which should generate demand for the stock and, thus, put positive price pressure on it. Haywood recommends buying GoldMining to "take advantage of the unwarranted market discount and new catalyst."
As for a breakdown of the 14 NSRs, there are two at 2%, 11 at 1% and one at 0.5%. They all are on projects at various stages, most with an established contemporary resource but no economic study. Defined gold resources of all of the projects amount to about 25.2 million ounces.
"Establishing the NSRs upfront, prior to negotiating any specific transaction on a specific asset, allows GoldMining to set the baseline for basis and unified terms of the NSRs," Healey highlighted.
The Vancouver-based junior resource firm also benefits from keeping the royalties in a wholly owned subsidiary, according to Healey. One, it creates a future catalyst in the form of a spin out of Gold Royalty Co. Two, GoldMining maintains control in the event of negotiations with another entity interested in acquiring one or more of its assets. Three, the company continues to have exposure to future discoveries and resource growth at its projects.
Haywood has a Buy rating and a CA$4.25 per share target price on GoldMining, a high bar Healey noted because his firm believes that "management could execute and unlock additional value in the stock." Haywood considers the GoldMining team, with its creativity and capital markets experience, to be one of GoldMining's "core strengths."
"We think this move demonstrates an intention to seek to unlock further value from GOLD's unique portfolio and investors will be rewarded in a flat or rising gold price environment," the analyst concluded.
GoldMining's shares are trading today at about CA$1.68 each.
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Disclosures from Haywood Securities, GoldMining Inc, June 24, 2020
Analyst Certification: I, Colin Healey, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
The following Important Disclosures apply for GoldMining Inc.: N/A
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